What is VAT?
Value Added Tax (VAT) is a consumption tax applied to goods and services at each stage of the supply chain. It is ultimately borne by the end consumer, while businesses collect and remit the tax to the government. In Saudi Arabia, VAT is governed by the General Authority of Zakat and Tax (GAZT), now known as Zakat, Tax, and Customs Authority (ZATCA).
VAT in Saudi Arabia
VAT was introduced in Saudi Arabia on January 1, 2018, as part of the Gulf Cooperation Council (GCC) Unified VAT Agreement. Initially set at 5%, the VAT rate was increased to 15% on July 1, 2020, to strengthen the country’s economy.
VAT Registration
Businesses operating in Saudi Arabia are required to register for VAT if their taxable supplies exceed SAR 375,000 annually. Voluntary registration is also available for businesses with taxable supplies between SAR 187,500 and SAR 375,000.
Obligations of Businesses
1. VAT Collection: Businesses must collect VAT on taxable goods and services sold.
2. VAT Filing and Payment: Monthly or quarterly VAT returns must be filed based on business size, and the VAT collected must be remitted to ZATCA.
3. Record Keeping: Businesses must maintain accurate records of all VAT-related transactions for at least six years.
Zero-Rated and Exempt Supplies
Some goods and services are subject to a 0% VAT rate or are exempt from VAT in Saudi Arabia:
•Zero-Rated: Exports, certain medicines, medical equipment, and international transport.
•Exempt: Financial services, residential property leases, and some education and healthcare services.
Importance of VAT Compliance
Compliance with VAT regulations is critical to avoid penalties and maintain smooth business operations. Non-compliance can result in fines, suspension of business activities, and reputational damage.
How We Can Help
We provide comprehensive VAT services, including:
• VAT registration assistance.
• Accurate VAT calculation and invoicing.
• Filing VAT returns and handling payments.
• Ensuring compliance with ZATCA regulations.
• Guidance on zero-rated and exempt supplies.